Question 1

The constant elasticity of demand for cigarettes has been estimated to be 0.5. To reduce smoking by 25%, approximately how much tax needs to be added to a $1 pack?

Accepted Answer

A)  $.50. 
B)  $.75. 
C)  $.25. 
D)  $.13. 
E)  $4. 
A)  $.50. 
B)  $.75. 
C)  $.25. 
D)  $.13. 
E)  $4. A

Question 2

If the demand function for tickets to a play is q = 3,800 - 95p, at what price will total revenue be maximized?

Accepted Answer

A)  $80 
B)  $40 
C)  $20 
D)  $10 
E)  none of the above. 
A)  $80 
B)  $40 
C)  $20 
D)  $10 
E)  none of the above. C

Question 3

Rollo would love to have a Mercedes. His preferences for consumption in the next year are represented by a utility function U(x, y), where x = 0 if he has no Mercedes and x = 1 if he has a Mercedes for the year and where y is the amount of income he has left to spend on other stuff. If U(0, y) = the square root of y and U(1, y) = (   )(y.5) and if Rollo's income is $50,000 a year, how much would he be willing to pay per year to have a Mercedes?

Accepted Answer

A)  $5,555.55 
B)  $5,000 
C)  $12,200 
D)  $9,500 
E)  $10,000 
A)  $5,555.55 
B)  $5,000 
C)  $12,200 
D)  $9,500 
E)  $10,000 D

Question 4

The demand curve for a good is given by p = 160 - 6q, where p is the price and q is the quantity of the good. Suppose that the number of consumers in the economy doubles; a "clone" of each consumer, who has exactly the same demand curve as the original consumer, appears. The demand curve for the doubled economy is described by

Accepted Answer

A)  p = 320 - 6q. 
B)  p = 320 - 12q. 
C)  p = 160 - 12q. 
D)  p = 160 - 3q. 
E)  p = 80 - 3q. 
A)  p = 320 - 6q. 
B)  p = 320 - 12q. 
C)  p = 160 - 12q. 
D)  p = 160 - 3q. 
E)  p = 80 - 3q.

Question 5

In Ozone, California, people all have the same tastes and they all like hot tubs. Nobody wants more than one hot tub but a person with wealth $W will be willing to pay up to $.01W for a hot tub. The number of people with a wealth greater than $W for any given W in Ozone is approximately   . The price elasticity of demand for hot tubs in Ozone, California, is

Accepted Answer

A)  -0.1. 
B)  -0.01. 
C)  -1. 
D)  -0.4. 
E)  none of the above. 
A)  -0.1. 
B)  -0.01. 
C)  -1. 
D)  -0.4. 
E)  none of the above.

Question 6

If the marginal cost of brewing beer is 40 cents and the profit-maximizing price is 90 cents, then the price elasticity of demand is

Accepted Answer

A)  -2. 
B)  -1.8. 
C)  -2.33. 
D)  -0.66. 
E)  -3. 
A)  -2. 
B)  -1.8. 
C)  -2.33. 
D)  -0.66. 
E)  -3.

Question 7

Rod cares about the number of cars he has and the amount of money he has to spend on other stuff. The only possibilities of interest for Rod are having 0, 1, or 2 cars. Where x is the number of cars he has and y is the money he has per year for other stuff, Rod's utility is U(0, y) = y.5, U(1, y) = (   )y.5, and U(2, y) = (   )y.5. Rod's income is $25,000 a year. It would cost Rod $2,500 a year to have 1 car and $3,500 a year to have 2 cars. How many cars will he choose?

Accepted Answer

A)  0 
B)  1 
C)  2 
D)  He is indifferent between buying 1 and buying 2 cars. 
E)  He is indifferent between buying 2 and buying 3 cars. 
A)  0 
B)  1 
C)  2 
D)  He is indifferent between buying 1 and buying 2 cars. 
E)  He is indifferent between buying 2 and buying 3 cars.

Question 8

The market demand curve is simply the horizontal sum of the individual demand curves.

Accepted Answer

A) True 
 B)False

Question 9

If the marginal cost of brewing beer is 40 cents and the profit-maximizing price is 90 cents, then the price elasticity of demand is

Accepted Answer

A)  -0.66. 
B)  -1.8. 
C)  -2. 
D)  -2.33. 
E)  -3. 
A)  -0.66. 
B)  -1.8. 
C)  -2. 
D)  -2.33. 
E)  -3.

Question 10

Given his current income, Rico's demand for bagels is related to the price of bagels by the equation Q = 520 - 12P. Rico's income elasticity of demand for bagels is known to be equal to 0.5 at all prices and incomes. If Rico's income quadruples, his demand for bagels will be related to the price of bagels by the equation

Accepted Answer

A)  Q = 520 - 24P. 
B)  Q = 1,040 - 24P. 
C)  Q = 2,080 - 48P. 
D)  Q = 520 - 12P. 
E)  Q = 1,040 - 12P. 
A)  Q = 520 - 24P. 
B)  Q = 1,040 - 24P. 
C)  Q = 2,080 - 48P. 
D)  Q = 520 - 12P. 
E)  Q = 1,040 - 12P.

Question 11

Demand for Barbara Streisand CDs is equal to Qs = P1.70sI2.20P1.80c, where Qs is the number of CDs, Ps is the price of a Streisand CD, I is per capita income, and Pc is the price of a Karen Carpenter CD. Streisand and Carpenter CDs

Accepted Answer

A)  are inferior goods. 
B)  are complements. 
C)  are substitutes. 
D)  have diminishing returns to scale. 
E)  are not as good as the original 8-track tapes. 
A)  are inferior goods. 
B)  are complements. 
C)  are substitutes. 
D)  have diminishing returns to scale. 
E)  are not as good as the original 8-track tapes.

Question 12

In a certain city, the demand function for crack cocaine is q = 1,000 - p, where p is the street price. The cocaine industry is competitive. Cocaine distributors can buy as much cocaine as they wish at a price of $50 per unit from Colombian sources. Whenever the city narcotics police catch a cocaine dealer, they confiscate all the cocaine that he has. The jails are full so they do not imprison the dealers. The police are able to catch the dealers about half the time, so they get about half the cocaine that enters the city. Instead of destroying confiscated crack, the police simply resell it on the street. If the original supply curve of cocaine on the streets was horizontal, what is the net effect of police activities on the market for crack in this city?

Accepted Answer

A)  The amount purchased on the street is about 50 units smaller than it would be with no enforcement. 
B)  There is no effect, since all of the drugs reach consumers anyway. 
C)  Crack dealers will stop dealing in this city altogether, since they can make more money elsewhere. 
D)  The amount of crack purchased on the street decreases by about half. 
E)  The quantity purchased by dealers rises to make up for the amount that is confiscated. 
A)  The amount purchased on the street is about 50 units smaller than it would be with no enforcement. 
B)  There is no effect, since all of the drugs reach consumers anyway. 
C)  Crack dealers will stop dealing in this city altogether, since they can make more money elsewhere. 
D)  The amount of crack purchased on the street decreases by about half. 
E)  The quantity purchased by dealers rises to make up for the amount that is confiscated.

Question 13

The only quantities of good 1 that Irene can buy are 1 unit or 0 units. For all positive values of x2, Irene's preferences are represented by the utility function (x1 + 10)(x2 + 2). If her income is $8 and the price of good 2 is $1, then Irene's reservation price for good 1 is

Accepted Answer

A)  $1.82. 
B)  $1.50. 
C)  $.91. 
D)  $5. 
E)  $.10. 
A)  $1.82. 
B)  $1.50. 
C)  $.91. 
D)  $5. 
E)  $.10.

Question 14

The constant elasticity of demand for cigarettes has been estimated to be 0.5. To reduce smoking by 75%, approximately how much tax needs to be added to a $1 pack?

Accepted Answer

A)  $.38. 
B)  $.75. 
C)  $1.50. 
D)  $2.25. 
E)  $4. 
A)  $.38. 
B)  $.75. 
C)  $1.50. 
D)  $2.25. 
E)  $4.

Question 15

If the demand curve is a linear function of price, then the price elasticity of demand is the same at all prices.

Accepted Answer

A) True 
 B)False

Question 16

If the elasticity of demand curve for barley is -1.50 at all prices higher than the current price, we would expect that when bad weather reduces the size of the barley crop, total revenue of barley producers will fall.

Accepted Answer

A) True 
 B)False

Question 17

Given his current income, Rico's demand for bagels is related to the price of bagels by the equation Q = 540 - 16P. Rico's income elasticity of demand for bagels is known to be equal to 0.5 at all prices and incomes. If Rico's income quadruples, his demand for bagels will be related to the price of bagels by the equation

Accepted Answer

A)  Q = 540 - 16P. 
B)  Q = 2,160 - 64P. 
C)  Q = 540 - 32P. 
D)  Q = 1,080 - 32P 
E)  Q = 1,080 - 16P. 
A)  Q = 540 - 16P. 
B)  Q = 2,160 - 64P. 
C)  Q = 540 - 32P. 
D)  Q = 1,080 - 32P 
E)  Q = 1,080 - 16P.

Question 18

The demand for tickets to a rock concert is given by D(p) = 200,000 - 10,000p, where p is the price of tickets. If the price of tickets is $17, then the price elasticity of demand for tickets is

Accepted Answer

A)  -2.83. 
B)  -11.33. 
C)  -17. 
D)  -8.50. 
E)  -5.67. 
A)  -2.83. 
B)  -11.33. 
C)  -17. 
D)  -8.50. 
E)  -5.67.

Question 19

In Gas Pump, South Dakota, every Buick owner's demand for gasoline is 20 - 5p for p less than or equal to 4 and 0 for p > 4. Every Dodge owner's demand is 15 - 3p for p less than or equal to 5 and 0 for p > 5. Suppose that Gas Pump has 100 Buick owners and 100 Dodge owners. If the price of gasoline is $4.50, what is the total amount of gasoline demanded in Gas Pump?

Accepted Answer

A)  300 gallons 
B)  75 gallons 
C)  225 gallons 
D)  150 gallons 
E)  none of the above. 
A)  300 gallons 
B)  75 gallons 
C)  225 gallons 
D)  150 gallons 
E)  none of the above.

Question 20

If at current prices, the demand for a good is price-elastic, then for movements along the demand curve,

Accepted Answer

A)  increasing the price will increase revenue. 
B)  decreasing the price will decrease revenue. 
C)  increasing the quantity sold will increase revenue. 
D)  increasing the quantity sold will decrease revenue. 
E)  More than one of the above statements are true. 
A)  increasing the price will increase revenue. 
B)  decreasing the price will decrease revenue. 
C)  increasing the quantity sold will increase revenue. 
D)  increasing the quantity sold will decrease revenue. 
E)  More than one of the above statements are true.

Exam 14: Market Demand

The constant elasticity of demand for cigarettes has been estimated to be 0.5. To reduce smoking by 25%, approximately how much tax needs to be added to a $1 pack?

If the demand function for tickets to a play is q = 3,800 - 95p, at what price will total revenue be maximized?

If the marginal cost of brewing beer is 40 cents and the profit-maximizing price is 90 cents, then the price elasticity of demand is

The market demand curve is simply the horizontal sum of the individual demand curves.

If the marginal cost of brewing beer is 40 cents and the profit-maximizing price is 90 cents, then the price elasticity of demand is

Demand for Barbara Streisand CDs is equal to Qs = P1.70sI2.20P1.80c, where Qs is the number of CDs, Ps is the price of a Streisand CD, I is per capita income, and Pc is the price of a Karen Carpenter CD. Streisand and Carpenter CDs

The only quantities of good 1 that Irene can buy are 1 unit or 0 units. For all positive values of x2, Irene's preferences are represented by the utility function (x1 + 10)(x2 + 2). If her income is $8 and the price of good 2 is $1, then Irene's reservation price for good 1 is

The constant elasticity of demand for cigarettes has been estimated to be 0.5. To reduce smoking by 75%, approximately how much tax needs to be added to a $1 pack?

If the demand curve is a linear function of price, then the price elasticity of demand is the same at all prices.

If the elasticity of demand curve for barley is -1.50 at all prices higher than the current price, we would expect that when bad weather reduces the size of the barley crop, total revenue of barley producers will fall.

The demand for tickets to a rock concert is given by D(p) = 200,000 - 10,000p, where p is the price of tickets. If the price of tickets is $17, then the price elasticity of demand for tickets is

If at current prices, the demand for a good is price-elastic, then for movements along the demand curve,

Budget Constraint

A: Budget Constraint

Preferences

A: Preferences

Utility

A: Utility

Choice

A: Choice

Demand

A: Demand

Revealed Preference

A: Revealed Preference

Slutsky Equation

A: Slutsky Equation

Buying and Selling

A: Buying and Selling

Intertemporal Choice

A: Intertemporal Choice

Asset Markets

A: Asset Markets

Uncertainty

A: Uncertainty

Risky Assets

A: Risky Assets

Consumers Surplus

A: Consumers Surplus

A: Market Demand

Equilibrium

A: Equilibrium

Auctions

A: Auctions

Technology

A: Technology

Profit Maximization

A: Profit Maximization

Cost Minimization

A: Cost Minimization

Cost Curves

A: Cost Curves

Firm Supply

A: Firm Supply

Industry Supply

A: Industry Supply

Monopoly

A: Monopoly

Monopoly Behavior

A: Monopoly Behavior

Factor Markets

A: Factor Markets

Oligopoly

A: Oligopoly

Game Theory

A: Game Theory

Game Applications

A: Game Applications

Behavioral Economics

Exchange

A: Exchange

Production

A: Production

Welfare

A: Welfare

Externalities

A: Externalities

Information Technology

A: Information Technology

Public Goods

Demand for Barbara Streisand CDs is equal to Q_s = P^1.70_sI^2.20P^1.80_c, where Qs is the number of CDs, P_s is the price of a Streisand CD, I is per capita income, and Pc is the price of a Karen Carpenter CD. Streisand and Carpenter CDs

The only quantities of good 1 that Irene can buy are 1 unit or 0 units. For all positive values of x₂, Irene's preferences are represented by the utility function (x₁ + 10)(x₂ + 2). If her income is $8 and the price of good 2 is $1, then Irene's reservation price for good 1 is